What is Arbitrage?

Arbitrage is when an asset is bought in one market and sold in another for a higher price.

Ever spotted an item selling for $10 in one store but $15 in another? If you bought it for $10 and resold it for $15, you just made an easy $5 profit—that’s arbitrage in action!

How Arbitrage Works in Finance

At its core, arbitrage is about profiting from price differences in different markets. Investors and traders use arbitrage strategies in various ways, such as:

🔹 Stock Market Arbitrage – A stock might be trading at $50 on the New York Stock Exchange but $51 on the London Stock Exchange. A trader can buy the stock for $50 in New York and instantly sell it for $51 in London, pocketing the $1 difference.

🔹 Currency Arbitrage – Exchange rates fluctuate between banks and forex platforms. A trader might exchange USD for EUR at one bank and then sell it at another for a higher rate, profiting from the difference.

🔹 Crypto Arbitrage – Bitcoin might be priced at $65,000 on one exchange and $65,200 on another. A trader could buy it at the lower price and sell it instantly on the higher-priced exchange.

🔹 Retail & E-commerce Arbitrage – Everyday people do this too! Some entrepreneurs buy discounted products from local stores (Walmart, clearance sales, thrift shops) and resell them at a profit on Amazon, eBay, or Facebook Marketplace.

Can Anyone Do It?

While large hedge funds and institutions use high-frequency trading algorithms to execute arbitrage within milliseconds, small-scale arbitrage opportunities exist everywhere. If you’ve ever used:

✅ Price-matching policies at stores
✅ Resold concert or sports tickets at a markup
✅ Bought and flipped collectibles like sneakers, Pokémon cards, or vintage watches

… you’ve engaged in arbitrage without even realizing it!